What Is a Spousal IRA – Rules, Eligibility & Benefits

In order to contribute to an individual retirement account (IRA), you must have earned income, right?

Although that’s true for most people, the IRS makes an exception for nonworking spouses. The government acknowledges that in some households, one spouse stays home with the kids while the other generates income, so they allow both spouses to contribute to IRAs based on the joint household income. To do otherwise would put these households at an unfair disadvantage in retirement planning.

Known informally as spousal IRAs, these tax-sheltered accounts help families save more money for retirement without the burden of taxes.

Eligibility for Spousal IRAs

The “spousal IRA” is just a regular IRA — the name merely refers to the fact that the working spouse can make a contribution to an IRA held in the name of a nonworking spouse. All the same rules apply, and the stay-at-home parent opens a standard IRA in their own name.

The eligibility requirements for the spousal IRA are straightforward:

  • Marital Status: Married
  • Tax Filing Status: Married, filing jointly
  • Earnings: The contributing spouse must have compensation or earned income of at least the amount annually contributed to the nonworking spouse’s IRA. If the contributing spouse also has an IRA, annual compensation or earned income must exceed the combined contributions of both IRAs.
  • Age: The nonworking spouse must be under age 72 in the year of the contribution for a traditional IRA. There are no age restrictions on a Roth IRA for a nonworking spouse.

Understand that IRAs are owned separately, not jointly. This means the nonworking spouse owns the assets in the IRA. Once your working spouse contributes to the IRA, the money becomes yours. The IRA is in your name and opened with your Social Security number, and it remains yours even if you divorce.


How It Works: Creating and Contributing to Accounts

Once you determine that you meet the eligibility requirements, you can open an IRA through your regular investment brokerage (E*Trade and SoFi are our favorites). You open the account in your name even if your working spouse is the one who contributes to it.

Once created, you or your spouse can transfer money into your spousal IRA from your checking account. At the time of transfer, you specify which year you want the contribution to count toward.

You can then invest in any assets allowed by your brokerage. You completely own and control the account, as with all IRAs.


Contribution Limits and Deadlines

Because spousal IRAs work just like any other IRA, the contribution limits are the same. They remain unchanged from 2020 to 2021 at $6,000 per year per adult. Adults 50 and over can contribute an extra $1,000 as a catch-up contribution, for a total annual contribution limit of $7,000.

Thus, a married couple under age 50 can contribute a total of $12,000, and couples over 50 can contribute up to $14,000 per year.

You can contribute to a traditional IRA, Roth IRA, or both. The combined total can’t exceed the limit, so for example a 40-year-old could contribute $2,000 to their traditional IRA and $4,000 to their Roth IRA to max out their annual contributions at a combined total of $6,000.

The IRS allows you to contribute funds to your IRA up until the tax return filing deadline for the previous year — usually April 15, but extended to May 17, 2021, for individuals for tax year 2020. So for the first several months each year, you can make IRA contributions for either the previous year or the current one.


Income Limits and Tax Benefits

Spousal IRAs offer the same tax benefits as an account in the name of a working spouse. These tax advantages come with limits that depend on your age and income, as well as the type of IRA.

Traditional IRA

The main tax benefit of traditional IRAs is that you can deduct the contribution from your taxable income. You don’t pay taxes on the earnings until you withdraw money from the account during retirement. At that point, the amount you withdraw each year is taxed as regular income. In fact, you must start taking required minimum distributions (RMDs) once you turn 72.

No matter how high your income, you can contribute to a traditional IRA. But you only get the tax benefit of deducting your contribution if the working spouse earns less than the income limits.

If the working spouse doesn’t participate in an employer-sponsored retirement plan, such as a 401(k) or SIMPLE IRA, the deductible amount phases out for incomes between $198,000 and $208,000 in tax year 2021 (up from $196,000 and $206,000 for 2020).

If the working spouse does participate in an employer-sponsored retirement account, the income limits are lower. In 2021, the ability to deduct contributions phases out between $105,000 to $125,000 (up from $104,000 to $124,000 in 2020).

Roth IRA

When you contribute to a Roth IRA, you don’t get an immediate tax deduction. Instead, your Roth IRA contributions grow and compound tax-free, and you don’t pay taxes on withdrawals in retirement.

Unlike a traditional IRA, which requires you to begin taking minimum distributions at age 72, you are never required to take minimum distributions from a Roth IRA.

The ability to contribute to a Roth IRA starts phasing out for couples earning more than $198,000 in 2021 ($196,000 in 2020), and disappears entirely for those earning more than $208,000 ($206,000 in 2020).


What Happens to IRAs When One Spouse Dies?

When you open an IRA, you name a beneficiary for the event of your death. The IRA bypasses probate and goes directly to that beneficiary, and creditors can’t touch it. If that beneficiary dies before you do, then your IRA goes into probate to be distributed as part of your estate.

Most married couples name their spouse as the designated beneficiary for their IRA. Spouses get special treatment by the IRS, with more options available to them for handling the inherited IRA.

When you inherit your spouse’s IRA, you can do any of the following with the funds.

Roll Over Funds to Your Own IRA

Unique to married couples, you can roll over funds from your deceased spouse’s IRA to your own IRA. You pay no penalties or taxes on the money at the time of rollover. The funds simply get treated as part of your own IRA from then on.

This is usually the best option for spouses from a tax planning perspective.

Leave the Money as an Inherited IRA

Inherited IRAs follow slightly different rules.

Withdrawals continue to be treated based on your deceased spouse’s age. On the plus side, you can start taking withdrawals penalty-free, even if you’re under 59 ½, as long as your deceased spouse had been over 59 ½. The downside is that you must take required minimum distributions based on your spouse’s age, even if you are under 72.

You can, however, submit a new schedule based on your age.

If you inherit a Roth IRA, you must take RMDs on it, which is not the case with your own Roth IRA (including if you had rolled over the IRA funds to your Roth IRA).

Take All the Money Now

You can just cash out the money in your deceased spouse’s IRA. The IRS doesn’t hit you with penalties, even if you’re under 59 ½. But you do have to pay income taxes on it, which may thrust you into a higher tax bracket.

Disclaim Some or All of the Money

Don’t want the money for some reason?

If you want some or all of the IRA funds to go to your spouse’s other designated beneficiaries instead of you, you can disclaim it within nine months of your spouse’s death. In effect, you take a pass on receiving it, so it goes to the other beneficiaries instead.

This may make sense from a tax planning perspective. Or maybe you just don’t need the money, and the other beneficiaries do.


Final Word

A spousal IRA is a great way to boost household retirement savings contributions and build a bigger nest egg. Plus, it gives a nonworking spouse the chance to build up assets, rather than missing out on some of his or her potential earning power due to helping out at home. Given the retirement challenges many women face in particular, spousal IRAs can create added financial security in addition to the tax benefits.

If you or your spouse stay at home, check to see if you meet the criteria for eligibility, and consider investing through a spousal IRA.

Source: moneycrashers.com

Getting the Best of Both Worlds from an Irrevocable Trust

The seeming finality of an irrevocable trust can sound scary to a lot of people. The whole idea that you are tying up large pools of your assets in a trust, and then giving control of that trust to someone else just doesn’t sit well with them. However, irrevocable trusts have a little more leeway to retain some control than you might realize.

Before we get into the details, we should talk about the two different types of trusts: revocable and irrevocable. The revocable trust, or living trust, is an agreement between the client (commonly called the settlor, grantor or trustor in the document) and the trustee (usually also the client), until his or her death. The living trust is designed to hold assets that remain fully available to the settlor but are excluded from the public probate process at death. These trusts can be fairly simple or very complex. A simple version may only organize the estate for outright distribution at the settlor’s death. A complex version may include several trusts to shelter the settlor’s assets from estate and generation-skipping taxes using available lifetime exemptions. The trust may hold concentrations in family businesses and real property or administer a family office that will provide essential investment and financial services for future generations. 

All domestic trusts, whether for a small estate (under $500,000) or a massive one (worth billions), are governed by the same trust laws, under one state or another. And the Trustee’s adherence to the formalities of those trust statutes is essential to the success of the estate plan. But the settlor’s power to modify the trust is equally essential, because tax and trust laws change, as do the family’s circumstances, and that flexibility ensures that the trust will provide the benefits intended.

Why Have an Irrevocable Trust?

However, for most tax-related trust strategies to go into effect, a trust must be irrevocable when funded, and an independent trustee must be appointed. Many people are apprehensive about using an irrevocable trust in their estate plan. They fear having an unrelated trustee control the legacy for their children under a document filled with legal terms that defy plain English definition.

So, what does it mean today for a trust — any trust — to be “irrevocable,” and why might that be both good and bad?

The first thing to understand is that a trust must have a trustee: one or more institutions with trust powers or qualified individuals who act as fiduciaries. A fiduciary, as it pertains to trusts, must at a minimum act in good faith, within the scope of the authority granted, and solely in the interests of the trust’s beneficiaries.

In recent years, the trend has been to employ family members in trust committees to manage specific assets, make certain tax elections and/or approve or direct distributions for the beneficiaries. In these cases, the trustee is not the sole fiduciary. In fact, for many complex trusts, the trustee is selected mostly to ensure that the laws of a certain state will control the trust’s taxation and administration while the family exercises trust discretion over investments and distributions.

State Codes Define Many Trust Provisions

The courts in the state where the Trust is created determine just how flexible an “irrevocable trust” can be. Most states have adopted a version of the Uniform Trust Code (UTC), a model legislative act to manage trusts in the state. The adopted version of the trust code in any state includes definitions and default and mandatory terms for trust instruments. 

For our purposes, the UTC provides a definition for the term “revocable”: “As applied to a trust, [revocable] means revocable by the settlor without the consent of the trustee or a person holding an adverse interest” and “unless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust.” Therefore, irrevocable means that the settlor may not retain an exclusive power to “revoke or amend the trust.”

But many state trust codes explicitly allow for the modification of a trust by the trustee and beneficiaries, subject to the settlor’s consent, if living, without court approval. Some state laws also allow a person to be appointed who may amend the trust, completely restate the trust, add or remove beneficiaries, and even pour the trust assets over into a completely new trust without the approval of any court, the consent of the settlor, or the agreement of the beneficiaries.

Make a Trust Easy to Change or Not?

There are good reasons that a settlor may want a trust to be easy to amend while he or she is living. As children grow into adulthood, many of the assumptions and expectations that may have determined the original trust’s terms and purposes can change in light of actual life events. But why would the settlor want the trust to be so easily modified by the beneficiaries after his or her death?

Simply put, the settlor might not. Clearly, there are many tax and financial reasons why a power to modify a trust that may last several generations is beneficial. But state trust laws have always included a process for a beneficiary to petition the court with jurisdiction to approve a modification, if necessary, to achieve or preserve an important trust purpose. 

The courts have great experience and legal precedent to follow when balancing the preservation of the grantor’s intent — sometimes described as a material purpose of the trust — and elevating the interests of the beneficiaries, which may be contradictory or incongruent. And the court’s power to modify or revoke the trust and distribute the assets outright among the beneficiaries is subject to review by courts of appeal. This system is designed to protect the rights of all parties to the trust, including the deceased settlor, who speaks primarily through the trust instrument itself.

The trend toward ceding greater control to the trust beneficiaries and avoiding the use of state courts may be based on several factors. One is likely rooted in a distrust of the formal judicial system. This distrust may be based on anecdotes describing incompetence, unjustified delay, high legal costs, and unfair or insufficient court orders. This distrust does not stop at the courts but includes institutional trustees, too — primarily because they diligently follow the terms and limitations of the trust instrument, much to the chagrin of beneficiaries who resent the controls authorized by the settlor.

The second factor is that settlors and beneficiaries today are more likely to view the trust relationship as a purely financial strategy to reduce taxes and provide a means for family governance. This perspective does not value fiduciary expertise and services as much as it values family control and discretion.

Getting the Best of Both Worlds with Your Trust

For most settlors, the modern trust laws are a vast improvement, which is why states are trending toward adoption of a uniform trust code that supports almost unlimited beneficiary control, when the settlor consents to such control.

 But what if the settlor wants the best of both worlds: the flexibility and control inherent in the use of family members as fiduciaries who can modify the trust and the protection of the settlor’s intent, evidenced by explicit and enumerated limitations that cannot be modified?

Well, that is the newest discussion point in the trust profession: How to draft an irrevocable trust that includes certain specific, unalterable instructions while giving authority to family members, as beneficiaries, to modify the rest of the trust as needed when laws and circumstances change. 

Most of the rules in the modern UTC are simply default rules that may be excluded or modified by the settlor in the trust instrument. The UTC provides definitions and enumerated powers, duties and standards that allow the trust instrument to incorporate well-understood conventions and context, so the settlor need not execute a hundred-page trust document. But the settlor can pick and choose among the UTC provisions, not including certain mandatory rules essential to public policy and the purpose of trusts under state law.

Likewise, the settlor may provide that certain terms and limitations cannot be modified, even if the trust is poured over, decanted to a new trust instrument. The settlor could require court approval for certain trust modifications or trust termination to ensure that the settlor’s intent is not frustrated. These provisions would essentially opt out of the parts of the UTC that allow the beneficiaries to modify those trust terms and even include a penalty for any attempt. 

An Example of How It Could Work

For instance, a settlor may want the trust to never develop a family farm transferred to the trust, now a family retreat. The trust may include a provision that the farm must be subject to a conservation easement with dedicated funding and supervision. But it may allow the beneficiaries to approve the partition of certain acreage for a limited number of homes for their use, or to sell off some or all the land, subject to that easement, after a specified term of years has passed. 

A settlor would be advised not to limit an appointed trust protector from modifying the trust to, for instance, preserve assets from increased taxation or waste, to add new protections from creditors, or to shelter trust assets for supplemental needs so a beneficiary may qualify for useful public entitlement programs, among other circumstances that may arise.

In fact, no settlor in 1970 would have imagined the economy we have today with the marked decrease in full-time employment with benefits, historically low income tax rates, consistently low inflation, almost zero depository and federal bond yields, the elimination of defined-benefit pension plans, online investment brokerage, and the creation of cryptocurrency, among many other developments.

But a settlor today is making gifts to a trust for their grandchildren, intending to meet the financial needs of a group of preteens to last through their retirement. He or she may want to limit their ability to modify some terms of the trust but should take care not to hobble the trust for lack of flexibility.

Senior Vice President, Argent Trust Company

Timothy Barrett is a senior vice president and trust counsel with Argent Trust Company. Timothy is a graduate of the Louis D. Brandeis School of Law, 2016 Bingham Fellow, a board member of the Metro Louisville Estate Planning Council, and is a member of the Louisville, Kentucky and Indiana Bar Associations, and the University of Kentucky Estate Planning Institute Program Planning Committee.

Source: kiplinger.com

How to Make a Will for Free

How to Make a Will for Free – SmartAsset

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Estate planning can be an overwhelming process, emotionally and mentally. The prices to work with a financial professional certainly don’t help either. These days, it’s possible to find free templates and do-it-yourself kits online that make estate planning more affordable. While after-life planning can be complicated, you may not need to spend money on an estate planning attorney. If your estate is simple, it might be worth investigating how to make a will for free instead. A financial advisor can help you sort through your options for making an estate plan.

Identify a Free Will Template

Your first step is to choose how you’ll obtain the template for your free will. You can either search online for resources that provide a template or work through a reputable legal resource. Often you will find that online services charge little to nothing for a will template, although that price can increase if you want a package with more documents.

Online resources like Freewill.com, a nonprofit site, can also offer forms for advance healthcare directives and durable financial power of attorney. You can alter these forms when you want, but keep in mind you’re responsible for destroying or editing the previous version if you do.

Decide How You Would Like to Distribute Your Assets

Having the form is one thing, but you need to reflect on your distribution wishes carefully. Your will should accurately reflect them. That also requires you to be aware of your assets. So, familiarize yourself with everything that comprises your assets and think about how you want them handled. When you detail the allocation in your will, you should set specific instructions for your beneficiaries. This measure will help your loved ones avoid court costs and in-fighting that can result when a will is too vague.

You also have the option to include varying levels of contingency in your will. For example, you can choose your spouse to receive a certain percentage, but specify that your particular friend will receive it if they don’t outlive you. You can then create a chain of succession. This allows you to minimize updating your will.

Select Someone to Fulfill Your Wishes

When you draft a will, you need to select an individual to execute it. The person will be in charge of seeing your wishes communicated and carried out. The title of this person can change depending on the state. Although you will see them typically called executors, they may also be titled administrators or a personal representatives. Your executor should either be a close, trusted individual in your life or a professional fiduciary.

That way, you can ensure your estate will be administered appropriately and the person you’ve left to do it will have your best interest in mind. If you choose someone close to you, make sure they can handle the emotional stress that may come with the position. So, speak to your candidate(s) beforehand about your expectations and the contents of your will.

Make Sure Your Will Fulfills All Legal Requirements

Each state demands different requirements to recognize your will. These guidelines can include recognized formatting, minimum asset distribution and rules regarding your witnesses. A will can be made invalid for numerous reasons, so it’s important to be careful when drafting yours.

For example, if you or any of your witnesses are deemed mentally incompetent, that can invalidate your will. Or, you if have multiple wills, they can come into conflict with one another.

Share Your Wishes With Your Family

If your will’s executor is someone from your personal life, you should talk to him or her about your distribution wishes. Similarly, you’ll want to talk with your family about your plans as well. Since they are the ones who will have to deal with your loss and the estate as your beneficiaries, they should know what waits. You should also communicate to them where you keep copies of the will.

If your original copy is with an estate planning professional or attorney, have their contact information accessible to your spouse or executor.

Is a Free Will Sufficient for My Needs?

If your estate and its distribution are very straightforward, a free will might suit your needs. As long as you research that the template works with your state regulations, you shouldn’t experience any legal ramifications. However, the more complicated your will needs to be, the less suitable it is for a free will format.

If you have a complicated family background, such as children from multiple marriages, have a diverse investment portfolio or generally have complex distribution wishes, a free will likely won’t work for you. While they are affordable and accessible, they’re not customizable to your needs. If your will is not written correctly, has gaps or is vague, your family may have to contest it in probate court. This would lead to legal costs and emotional damage that a will is supposed to prevent. However, don’t be afraid to bring a free will you’ve worked on to your estate planner or attorney. That document can be a good place to start.

The Takeaway

Free wills are a valuable resource for those with simple estates. They can even be valuable starting points for someone new to estate planning. However, they have their limits. An individual with complex distribution wishes will find that a free will doesn’t accommodate all their specific needs. Even more, if it isn’t completed properly or has gaps, it might become invalid, which could lead to probate court. When you write your will, you want to finish it knowing that it does exactly what it’s supposed to do: protect you and your loved ones. Your will’s validity influences that.

Estate Planning Tips

  • Consider working with a financial advisor as you create or modify your estate plan. Finding one who’s ready to address your needs doesn’t have to be hard. With SmartAsset’s free matching tool, you can locate financial advisors in your area who can help you achieve your financial goals. If that sounds like the help you need, get started today.
  • A key part of estate planning is assessing your need for life insurance: how much and what type of policy. A life insurance calculator can give you a quick estimate of what you should consider buying.

Photo credit: ©iStock.com/fizkes, ©iStock.com/ridvan_celik, ©iStock.com/yongyuan

Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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Retirees, Your Finances Need an Annual Checkup

If you’re like most people, you probably started off 2021 with lofty goals and ambitious New Year’s resolutions that by now have long since been abandoned. Take heart. There’s one resolution that’s easy to keep because it’s typically a once-a-year commitment. 

Like an annual physical, an annual financial review can keep your finances healthy. “We all go on this health checkup every year, but your wealth checkup could be even more important for your long-term well-being,” says Daniel Hill, a certified financial planner and president of Hill Wealth Strategies in Richmond, Va. A review is worth doing even if it seems like nothing has changed. (Financial planners usually recommend that you review your finances after major life events or whenever your goals need adjusting.) Best of all, once you get this job over with, you can generally forget about it for the next 12 months. 

An annual financial checkup is always a good habit, but “the more volatility and uncertainty in the world, the more you want to double check,” says Adam Goetz, a partner at Burstin & Goetz, a financial-planning firm in Pittsburgh, and the national president of the MassMutual Advisors Association. 

In fact, a financial review may especially be in order now because 2020 was such a momentous, atypical year: There were no required minimum distributions, little opportunity to travel or spend, and an election that upended the political party in power in Washington. As vaccinations ramp up and life returns to some semblance of normalcy, 2021 may look nothing like last year, and the same may be true of your finances. 

Review Your Monthly Budget

The biggest thing likely to change is your budget. “I asked my friend who owns a dry cleaner how he’s doing and he’s getting crushed,” Hill says. “People just aren’t spending the way they used to.”

Chances are, you’re spending less on gas, auto repairs, travel and, yes, dry cleaning. On the other hand, you may be spending more on home improvement, groceries, online shopping and health care. Meanwhile, your savings probably got a welcome boost from stimulus money.

As you consider what 2021 has in store for your finances, start by checking monthly bank and credit card statements and organize your spending into categories: housing, groceries, travel, entertainment, and so on. Then, compare the actual spending with that of prior years to see how you fared. To balance out unusual swings, Hill recommends basing your budget on your average spending for the past three to five years.

You should also check whether you have enough in cash savings for 2021. “I recommend people divide their savings in terms of buckets,” says Hill. “For example, they might have one account for their emergency fund, one for the vacation fund, and one for day-to-day expenses.” Each bucket should have enough to cover your expected spending. If not, top them up. 

Whether you’re retired or not, your emergency fund should have enough cash to cover at least three to six months of living expenses. The last thing you want is a sudden cash crunch forcing you to make a large withdrawal from your taxable retirement plans, potentially pushing you into a higher tax bracket.

This is also a good time to check your credit reports and credit scores from the rating agencies (Experian, Equifax and TransUnion) and correct any errors you find. If last year left you with more cash on hand, Hill suggests putting this money toward paying off credit card debt and boosting your credit score as much as possible. “With interest rates so low, this is one of the best times to have strong credit,” he says. “You could literally save thousands of dollars by refinancing your mortgage at a lower rate, thanks to an improved score.”  

Assess Your Investment Portfolio

If there’s one thing you probably weren’t expecting last year, it was a steep market crash followed by a rapid market climb. G-forces like those can turn a portfolio’s asset allocations upside down. 

For example, let’s say your goal was a 50/50 split of stocks and bonds, but after 2020’s strong returns, your portfolio now has 65% in stocks and a correspondingly higher risk. You need to rebalance, selling stocks and buying bonds until you get back to your 50/50 target. Experts recommend rebalancing at least annually, though Hill tells his clients to do it quarterly.

Goetz says rebalancing is especially important in a volatile market. “We all hear this advice, we all know we should do it, but often people just don’t, especially during good times.” When markets are soaring, there’s a real temptation to keep more money in stocks. That’s a risk people nearing or in retirement, who need to draw income from their investments, can’t afford. 

He tells clients: “Remember what March 2020 felt like. The goal of your asset allocation is to protect your portfolio and maintain your long-term income options, rather than generate immediate gains.”

You should also consider whether your savings will safely last based on your withdrawal rate, expected returns and tax bracket. “You can’t blindly just take out 4%, 5%, of your portfolio each year and hope it works out, especially given unprecedented long life expectancies and low interest rates,” says Goetz. He notes that 2020 in particular may have thrown off some income plans. “I have some clients who went all cash in March and were hesitant to get back in. How will that impact their safe withdrawal limit?”

A financial adviser can run simulations to see whether your portfolio can generate the income you need. You could also run the numbers yourself using a free calculator. 

Plan Ahead

You should also double check the primary and contingent beneficiary listings on your retirement plans and life insurance policies. “It happens all the time. A client walks in thinking they’ve got their beneficiary all in order on their 401(k), and then it turns out they didn’t even have one,” says Hill. It’s a simple fix to name someone on these accounts. Beneficiaries bypass probate and receive the funds directly when the account owner or policyholder dies.

If you’re considering life insurance, Goetz suggests acting soon. “Not only is protection planning more important during a pandemic, but pricing is also more advantageous now than it may be in the future,” says Goetz. Ultra-low interest rates, along with a potential higher death rate, has put pressure on life insurers’ assumptions and reserves, so he expects rising premiums in 2022 and beyond as insurers are forced to adjust. 

Tax laws and regulations are in flux, especially with a new political administration. You may want to meet with an adviser or an accountant to consider any material changes and anticipate their effects on your financial plan. If you’re a do-it-yourselfer, a class or seminar through an educational institution or nonprofit organization, rather than a financial company’s sales pitch, may be in order.  “Look for an instructor whose top goal is to teach, rather than moving product,” Hill says. 

One notable change for retirees this year is that they probably won’t be getting another free pass with required minimum distributions. “The government waived RMDs in 2020, but all indications are that it won’t be the case for this year,” Goetz says. If you turned 70½ before the end of 2019, you will need to resume taking RMDs in 2021. (For everyone else, RMDs aren’t required until age 72.) 

Adding insult to injury is that required minimum distributions could be higher in 2021. After last year’s market gains and no forced withdrawals, investment portfolios have swelled in size. Retirees may need to withdraw more money just to hit the same percentages as before.

Goetz suggests using your review to prepare for possible RMDs. Your adviser, accountant or brokerage can help you determine how much you must withdraw in 2021. The financial institution where you keep your IRA also may be able to calculate the amount for you or you can use an online RMD calculator.

Source: kiplinger.com

Breakdown of Estate Planning Costs

Breakdown of Estate Planning Costs – SmartAsset

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Estate planning costs vary, and the difference in fees can only add to the emotional challenges. It’s difficult enough to begin managing matters of death without confusion on top of that. The pandemic has only compounded such challenges. We are most stressed when we don’t understand, though. So, if you’re trying to navigate the basics of estate planning costs, below are a few core concepts that might help. Consider working with a financial advisor if you need help setting up an estate plan or managing inherited money.

Why is Estate Planning Important?

Before diving into costs, it’s important to lay out why an estate plan is so vital. Estate planning is a crucial measure in protecting not only your interests but your family as well. Without it, all of the assets you’ve worked hard to gain, including money, property and valuables, could get caught up in a legal tug of war. A comprehensive estate plan prevents in-family strife following your passing.

Therefore, it gives you the chance to take protective measures for your children. In the event you pass away, you’ll want them to have a guardian they can rely on and to minimize their financial burden as much as possible. Otherwise, their inheritance could be swallowed up by fees and taxes, leaving them with little in the end.

Overall, the significance of an estate plan is an allowance for your family to grieve your loss without having to fear the financial repercussions that might cause.

Hiring an Attorney vs. Estate Planning Online

The internet is useful for small fixes and tips, but you shouldn’t rely on the internet for everything. When it comes to something as important as estate planning, you’re better off hiring a professional. Do-it-yourself kits are advertised online, but their main draws are their simplicity and low costs. That might appeal to someone with no heirs or substantial property, but not if you have any specialized needs.

Sites may only help you create a will. A will cannot help any of your heirs avoid probate, which could incur estate taxes on the whole. The chances of issues like these only increase the more complex your situation is without a plan to match.

While internet legal sites can be alright starting points for some basic estate plans, they will not be able to address the collection of concerns you may have. However, research can be a great advantage in a legitimate consultation with an attorney. So, bring any questions you have to your first meeting with your estate planner.

Types of Estate Planning Fees

Not all estate attorneys use the same pricing system, so you may receive a variety of estimates depending on the individual. When trying to budget for the cost of an attorney estate plan, it’s important to know who is doing the work, what type of plan you need and the legal fees your estate planning attorney prefers.

Hourly Rate

If your attorney can’t pinpoint a fixed fee to charge you, he or she will likely use an hourly rate. This would encompass any time your lawyer was working on your case. If your attorney asks for an hourly fee, they may also request a retainer upfront before they begin. This could be the total amount or a portion of it. If it’s the latter, they’ll bill you the rest at a later point in the process.

An hourly rate may come into play if your attorney believes that your estate plan will require extra time or effort due to its specifications. They may also have an hourly rate they consistently use based on their knowledge and experience.

Flat Fee

A flat fee is a fixed price your attorney may offer to accommodate their estate planning work and experience. This pricing will typically cover preparing necessary documents, such as a will or a power of attorney. If your lawyer asks you for a flat fee, you should clarify what’s included in that plan. That is because it can change depending on the estate planner’s discretion. For example, some attorneys might not include a notary or helping with trusts.

Your attorney may also require you to pay a partial or total amount of a flat fee before they begin working. So, it’s best to ask about the payment expectations for a flat fee and what it covers ahead of time.

Contingency Fee

A contingency fee is used in situations where you will receive monetary compensation. For example, when you win a court case and accept awarded money, you pay your attorney a percentage. Because of this, estate planners don’t typically use contingency fees. They don’t make sense without an opposing side.

However, if you need to settle an estate, a probate attorney might use this type of fee.

Factors that Can Increase Your Bill

Fees are just one variable that could affect your estate planning bill. Any special considerations or tasks could increase the total fee. You should know what to expect, so talk directly with an attorney. Ask to schedule an upfront consultation in person, usually free of cost, and supply you with an estimate. Also, there’s no harm in comparing prices. So, feel free to speak with a few potential attorneys and pick the one best suits your needs.

Why Do Costs Vary By Estate Plan?

Estate plan costs vary because each estate plan has unique needs. The lower end of the spectrum can include a basic will written for as little as $150 to $200. But a more complex plan may cost you upwards of $300 per hour. If you want something that reflects your situation and the necessary measures it will take to protect your assets and heirs, it will cost more. The cost also depends on how many documents you need prepared beyond your will, like a power of attorney and the circumstances of your heirs.

There is no “one-size-fits-all” plan for an estate. For example, a couple with underage children will be focused on a plan that emphasizes guardianship, long-term care and financial security. However, add extra factors such as previous marriages and multiple trust funds. That situation calls for more accommodations while spreading out the distributions. This shouldn’t stop you from shopping for the most affordable price, but don’t let it be the deciding factor. If you’re not careful, your heirs could lose money regardless because the estate wasn’t properly managed.

How to Minimize Your Estate Planning Costs

Estate planning can be unpredictable and costly. Depending on your situation, you may be paying an unexpectedly high fee. If you plan accordingly, though, you will find there are ways to help minimize the costs. Here are a few suggestions for you to consider:

  • Pick the right attorney: Research firms, read reviews and compare them. Try to schedule an in-person consult with each one.
  • Know your needs: Go into your first meeting educated. Know what a basic estate plan includes and whether you’ll need more documents.
  • Discuss money upfront: Whether it is on the phone or in-person, a firm might offer the first consultation free. Use that opportunity to discuss rates and how long the process might take.
  • Put it in writing: Once you choose your attorney, make sure you draft a written agreement you both sign. It should include the work your lawyer will do as well as any costs.

The Takeaway

Having substantial assets means lots of planning: retirement planning, tax planning and estate planning. When doing estate planning be aware of your options. You can do it online to save money or you can hire an estate planning attorney. Taking the latter course will involve various fees, some of which may be flat fees, contingency fees or hourly fees. And while using a lawyer is more expensive, it reduces significantly the likelihood that your digital DIY estate plan will hold up in court.

Tips on Estate Planning

  • The probate process can hold up the process of distributing your assets for as long as a year. However, with good estate planning, you can help your heirs avoid this inconvenience. A professional financial advisor can help you plan out your estate and manage your wealth on top of that. To find one in your local area, use our advisor matching tool. If you’d like to get connected to one, get started today.
  • A revocable living trust isn’t the only trust that can help you secure your assets from probate. Look into how different trusts work to see which kind is right for you.

Photo credit: ©iStock.com/monkeybusinessimages, ©iStock.com/vaeenma, ©iStock.com/vaeenma

Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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Source: smartasset.com